First published 02 June, 2024
Driven by the existential threat of climate change (depending on who you ask) and a growing green economy, political leaders and investors are increasingly in conversation to align on climate-focused innovation. Incentivising startups that advance climate tech—products and services related to clean energy and climate change—has become central to innovation policy. Dealing with climate change’s effects or projected outcomes is like a war, where clean energy solutions act as weapons in the battle.
The good news is that small, innovative startups are constantly developing new solutions to address climate change. They have developed solar panels that capture the sun’s energy, wind turbines that use wind power to generate electricity, and are continually devising new ways to capture and store carbon emissions. However, for these technologies to move from research and development to widespread adoption, startups need to grow and scale, which requires private investment.
Governments play a crucial role in supporting these startups. They can give them money to help them develop their ideas (through grants) or create policies that make clean energy more attractive (like feed-in tariffs, which pay people for the clean energy they generate). This helps get these new “weapons” off the ground.
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Despite this need, research on how different investors influence climate innovation and how public policy can encourage private investment in climate-tech startups is limited. So, what’s the role of corporate investors in climate-tech start-ups?
Historically, the private sector, and corporations specifically, have underinvested in clean energy and climate solutions due to several factors: the capital-intensive nature of new technologies, long development cycles, competition from existing fossil-fuel-based systems, and a preference for lower-risk sectors such as software. However, recently, there has been a notable increase in private sector interest in climate-tech startups. This renewed interest is informed by the lessons learned from previous cycles of climate-tech investments, which were impeded by a scarcity of investors and a lack of sufficient experience among them. Now, there is a robust and knowledgeable investment community, which is better equipped to support the growth and success of innovative climate technologies.
Understanding the behaviour of private investors, including corporations, is crucial because they are not a homogeneous group. They have varied focuses, risk appetites, and return expectations, which can lead to different investment choices and influence the direction of technological innovation and energy transitions.
Per a report by Nature Energy, “Compared to public and other private investors, who may fund startups independently, corporate investors are more likely to invest in combination with other types of investors. However, they often do so within sectors where they have deep experience, with 42% of investments from transportation corporations going to transportation startups and 59% of agriculture corporation investments going to agriculture startups.”
But why is a corporation’s investment so significant? Well, beyond just funding, corporations bring crucial resources like market access and expertise to climate-tech startups and can potentially influence which technologies win and how fast they grow. This growing role of corporations in shaping clean energy innovation deserves more attention from policymakers to ensure these investments truly accelerate climate action.
The first wave of clean energy startups fizzled because investors, especially corporations, weren’t on board. To truly accelerate climate action, we must find ways to get corporations to invest in promising climate-tech startups.
Here’s the challenge, though: corporations can drive down costs with their expertise, but there’s no system to reward them for this societal benefit. The solution could be in the form of public-private partnerships. They can build on existing models, such as a case where companies work with governments to buy clean tech and expand them to fund promising startups directly. At the same time, requiring corporations to disclose their climate-tech investments, similar to what’s already done for some financial institutions, could hold them accountable for putting their money where their mouth is on climate action.
The clean energy revolution needs a complete overhaul of its investment strategy. Achieving net-zero emissions requires a diverse toolbox of technologies, many still in their early stages. Unlocking private and corporate capital is important, but throwing money at the problem won’t work since different technologies require different investors. Understanding the motivations and behaviours of each investor, along with the specific challenges of each clean tech sector, goes a long way.
As said, the big and often overlooked player here is corporations. As they become a significant source of funding for climate-tech startups, it becomes very critical to understand how their investments shape the future of clean energy. Are they backing technologies accelerating climate action or prioritising their bottom line?
By getting smarter about who invests in what, we can ensure climate-tech innovation focuses on the technologies that will get us to net-zero, not just the ones that line corporate pockets. This is where future research and policy come in. There should be a way to guide investment towards the most impactful solutions, not just the flashiest.
Kenn Abuya
Senior Reporter, TechCabal
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